Court Extends Corporate Whistleblower Protections

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A divided federal appeals court has extended the scope of the whistleblower protections of the Dodd-Frank Act to those who report wrongdoing at a company internally before they go to securities regulators.

The Second Circuit Court of Appeal on Thursday revived a lawsuit in which the former finance chief of a unit of advertising company WPP alleged he was fired because he reported accounting irregularities to his superiors. Daniel Berman did not report his concerns to the U.S. Securities and Exchange Commission until six months after he was terminated.

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The appellate decision finding Berman qualifies for the retaliation remedies of Dodd-Frank makes it easier for some corporate whistleblowers to sue their employers, but may ultimately be reviewed by the U.S. Supreme Court because it conflicts with that of another circuit.

“From the employer perspective, it raises the stakes and the importance of avoiding retaliation claims,” Jill Rosenberg, an employment law partner at Orrick, Herrington & Sutcliffe, told Reuters. “This is an issue the Supreme Court will have to decide.”

The Second Circuit split 2-1 in the case, with the dissenting judge accusing the majority of redrafting Dodd-Frank to “give it a more respectable reach.”

Judge Jon Newman, writing for the majority, suggested the ruling would benefit auditors in particular since they are barred from reporting alleged wrongdoing to the SEC until they have brought it to their employer’s attention.

The case hinged on a last-minute addition to Dodd-Frank that creates a private cause of action for whistleblowers whose employers retaliate against them for lawfully providing information to the SEC or making protected disclosures under the 2002 Sarbanes-Oxley governance law.

A trial judge threw out Berman’s claims, finding Dodd-Frank’s “plain language” required him to go to regulators first, but the Second Circuit majority deferred to the SEC’s broader interpretation of the law.

In his dissent, Judge Dennis Jacobs said, “A shorter statute of limitations may be inconvenient for some plaintiffs, but it does not threaten the entire statutory scheme.”